Hong Kong Unveils Roadmap to Boost Centre as FIC Hub

Seven years after Singapore’s central bank launched an initiative to harness the e-FX market in Asia – which appears to have been very successful if FX volume numbers are anything to go by – Hong Kong’s regulators have unveiled a roadmap to establish the centre as a global fixed income and currency hub, with offshore renminbi (RMB) at the heart of the push.

The Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) jointly announced the move, highlighting 10 initiatives based upon four “pillars” to support it. The four are primary market issuance, secondary market liquidity, offshore RMB business, and next-generation infrastructure.

The two regulators say the roadmap will guide the policy making and implementation of the SFC and the HKMA in coming years “to support the sustainable and diversified growth of Hong Kong’s capital markets”.

Noting that the growth of the RMB business has been a key contributor to Hong Kong’s FX market development, the roadmap observes that, “shifting market dynamics and the diversification trend are expected to fuel the further growth of Hong Kong’s RMB business”. To help this, Hong Kong will further promote the use of RMB direct-cross transactions with other currencies by encouraging financial institutions to provide competitive quotes and facilitate increased trading volumes. “Greater availability of RMB-denominated products would encourage wider acceptance of RMB,” the roadmap states.

The SFC and the HKMA add they will continue to work with Chinese mainland authorities to refine the Bond Connect schemes to provide international and mainland investors with smoother and more efficient access to each other’s markets. “Efforts will also be made to further enhance the offshore liquidity generation and risk management mechanism to facilitate investors’ management of their RMB exposures, thus encouraging them to invest in RMB in the first place,” the paper states. “The SFC is working closely with Hong Kong Exchanges and Clearing Limited (HKEX) and relevant mainland authorities on launching offshore CGB futures in Hong Kong to provide an effective hedging tool for investors to manage their risk exposures to CGBs.”

It adds that the HKMA will work with China’s central bank, Peoples Bank of China (PBoC) to implement cross-boundary repo.

In terms of infrastructure, the roadmap teases a local centralised platform for markets that have thus far “primarily transacted via OTC mechanisms”. It observes that a dedicated FIC trading platform for Hong Kong designed to facilitate the participation of a larger and more diverse group of market participants in Hong Kong’s FIC markets “could enhance market efficiency, transparency and resilience”.

This would, the paper continues, provide a regulated, e-trading environment which facilitates efficient price discovery and lowers transaction costs for market participants; connect users with a range of liquidity providers to source liquidity more efficiently; and provide market data and analytics to meet market participants’ reporting needs and regulatory obligations (such as on best execution).

“To position Hong Kong as a global FIC hub and further cement our position as the premier offshore RMB business centre, we will continue to build on our strengths, adapt to market changes and innovate, and capitalise on emerging trends, including RMB internationalisation and the digitalisation of the FIC market,” says Eddie Yue, CEO of HKMA. “The roadmap comprehensively set out our work focuses in the near future.”

Julia Leung, CEO of the SFC, adds, “Strengthening Hong Kong’s FIC markets is essential to advancing its position as an investment and fund-raising hub. The roadmap reflects our close collaboration and shared commitment with the HKMA, industry partners and other stakeholders to enhance Hong Kong’s vital role in bridging Mainland and international capital markets.”